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HMRC internal manual

VAT Place of Supply of Services

Land-related services: Grants of interest etc in land

Some transactions in land and property are supplies of services and some are supplies of goods: the distinction between the two is dealt with in the manual covering land and property.

Briefly, the supply of a major interest (the freehold or a lease of more than 21 years (20 years in Scotland) is a supply of goods under paragraph 4 of Schedule 4 of the VAT Act 1994 and is therefore covered by the rules on place of supply of goods.

Other grants, assignments, leases of 21 years or less (20 years or less in Scotland) or surrenders of interests in land are supplies of services and fall within the scope of paragraph 1 of Schedule 4A of the VAT Act 1994.

The terms used in paragraph 1 of Schedule 4A mirror those in item 1 of Group 1 of Schedule 9 to the VAT Act 1994 covering the exemption for supplies of property and are explained in the manual covering land and property. Unlike the exemption group there are no exceptions and paragraph 1 also covers any other contractual right over land. The place of supply of services rules apply to land-related services that are taxable as well as those covered by the exemption. A decision by the European Court of Justice in Rudi Heger GmbH (C-166/05) provided further clarification of the meaning of services related to land under what was Article 9(2)(a) of the Sixth Directive (now Article 47 VAT Directive 2006/112/EC).

Rudi Heger was a company established in Germany. In 1997 and 1998 it purchased fishing permits for the Gmunder Traun River in Austria from an Austrian company, Flyfishing Adventure GmbH. The permits gave the right to fish on certain stretches of the river during certain periods. Heger then resold the permits to customers across the EC.

Flyfishing Adventure GmbH invoiced Heger inclusive of Austrian VAT, which Heger then sought to recover via an 8th Directive refund claim. The Austrian authorities rejected the claim on the basis that the sale of the permits was a land-related supply under Article 9(2) (a) of the Sixth Directive, and so the VAT was incurred in making taxable supplies in Austria.

The ECJ went against the Opinion of the Advocate General (who opined that for place of supply purposes, supplies are only land-related where they involve physical or legal changes in land) and instead found that supplies of the rights to fish a section of river are land-related within the scope of Article 9(2)(a). That was on the basis that there was a direct link between the rights and the land.